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Welfare Reform

With permission, Mr Speaker, I should like to make a statement on welfare reform. Let me start by welcoming the right hon. Member for Paisley and Renfrewshire South (Mr Alexander) to his new post as shadow Secretary of State for Work and Pensions. We have already had a conversation in the last week. I extend that welcome to all members of his new shadow Front-Bench team. The statement today is in three parts. First and foremost, today—as everyone in the House may well now know—we launched an approach to those on incapacity benefit under the work capability assessment, and it is necessary for the House to hear this directly from us so that Members can question me. Secondly, I want to use this opportunity to set out more detail on the new Work programme, which is very much related to the work capability assessment. Thirdly, the House has a right to know more about our plans for wider benefit reform as we look ahead to a White Paper and welfare reform Bill, although I would add the caveat that greater detail will be contained in that statement. The economic backdrop is severe. We have the largest deficit in the G20 at £155 billion—the largest in peacetime history—with debt interest of £120 million a day, or £43 billion in 2010-11. Under the previous Government's deficit reduction plan, which the Opposition now seem not to favour—although I might be wrong on that point—annual debt interest spending would have risen in only five years to almost £70 billion. Let me put that in context: that would have meant spending more on interest than we spent on policing, defence and transport combined. So, there is an urgent requirement to make these changes and reforms. We are at a critical point, with 5 million people on out-of-work benefits, 2 million working-age people claiming incapacity benefit, of whom 900,000—just under 1 million—have been claiming for an entire decade, and a system that has left Britain with the highest rate of jobless households in Europe. Those statistics reveal the human cost of leaving our welfare system unreformed, and with that comes an ever-increasing financial cost. The working age welfare budget rose by 40% in real terms from £63 billion in 1996-97 to £87 billion in 2009-10. A staggering £133 billion was spent on incapacity benefits in the past 10 years, and benefit spending is forecast to be more than £152 billion in 2010-11, which is about 10% of gross domestic product. Today we spend £1 in every £3 on welfare in this country, yet youth unemployment is higher and inequality greater, and there are 800,000 more working age adults in poverty than there were in 1998-99. In that context, we also announced the reform of child benefit last week. I personally do not think that it is right, if we have to make changes and reductions, to tax the poorest to fund the receipt of child benefits by those with the highest levels of income. If we do this correctly, we can save about £1 billion, protect some 85% of families and secure fairness as we support people. I know that that is tough—we are in tough times—but I believe that it is fair, and that is the key. The important thing as we come through these spending reviews is that we should have a progressive change, not a regressive change. At the same time, we announced procedures to set a cap on benefits for workless households to average earnings, which are about £26,000. However, we ought to set that in context. The cap will be net of income tax and national insurance, so if someone was working to receive that amount of money it would equate to gross earnings of some £35,000 a year—not a very narrow cap. Equally, we will exempt the disabled and those on working tax credit so that we encourage work incentives and do not penalise those who find it difficult to be in work. That is fair, and we will announce more details in the spending review, which means that I shall do my level best to answer some of the questions that I expect Members want to ask. In the last week we have also announced a new enterprise allowance, which is there to help unemployed people who would like to try to set up their own business. We will be able to give them up to £2,000 in various forms, as well as the advice and mentoring of those who have started their own businesses. Today, the most important step is that we are launching two trials for those on the old-style incapacity benefit under the work capability assessment. The Minister of State, my right hon. Friend the Member for Epsom and Ewell (Chris Grayling), is travelling to Aberdeen and Burnley today to see both those trials get under way. They are about giving many thousands of people the opportunity to move from the margins of society into mainstream employment. I remind the House that we inherited the programme, and that I supported it while we were in opposition. We have had to make a few changes, and we will make more as necessary. Under the new system we will assess people on the basis of what they can do, not what they cannot, and thereby support people to meet their aspirations for work. We are determined to get it right, which is why we will learn from the trials and why we have set up an independent experts group to scrutinise the assessment. That group includes, for example, the chief executive of Mind, so as the programme is trialled we will listen to and deal with concerns about those who are mentally ill, such as those expressed on the radio today. Through those measures and through the Work programme, we are committed to supporting everyone who goes through the assessment. We will ensure that those deemed unable to work continue to receive the support that they need, and that those deemed able to work are fully supported to do so. People who are found fit for work will move directly on to our new Work programme rather than have their jobseeker's allowance stopped in the normal way. They will receive an integrated package of support, and in due course so will those who have been out of work for a longer period. It will provide personalised help based on individual needs, not on the benefit that somebody receives. Using the best of the private and voluntary sectors, that will help get people into work as quickly as possible. The systems that I have described are what we call black-box systems, and I shall explain what that really means. Put simply, we will not lay down prescriptive criteria about how they should be run. We want those running them to do whatever is necessary to help people into work—that is the key. They will be operated on a payment-by-results system that ensures that providers do not simply go through the motions. They will receive their real money only for getting someone into work and ultimately keeping them there, and they will find rewards further up the chain as they do so. We have received more than 790 expressions of interest in joining the programme from providers, and in December we will invite bids for contracts, ready for national roll-out next year. Finally, the work capability assessment and the Work programme are of course critical to getting more of the 5 million or 5.5 million people who are currently on benefits back into work, but they will not be enough. Underpinning that support must be a benefits system that incentivises work, and we have to ensure that work always pays. That is why the coalition Government aim to bring forward a White Paper soon and a welfare reform Bill in the new year. The introduction of what I call the universal credit will restore fairness and simplicity to an overly complex, outdated and now wildly expensive benefits system that simply prevents people from getting back to work. As we get the benefits system working, we can get Britain working. The best way to get the deficit down, drive the recovery and get the economy moving is to ensure that more and more of the British people who can work do so. Welfare reform is critical, and I give a guarantee that people moving on to the universal credit will not be any worse off at any stage. In fact, they will be better off as they find work. Everyone in the House should unite around, and try to achieve, the cause of moving people into work and creating a pathway out of poverty for the 5 million people on out-of-work benefits. I understand that the new leader of the Labour party has said that he will not be in opposition for opposition's sake, so I hope that he and his shadow Cabinet colleagues will do the right thing and support us in delivering a welfare system that is fit for the 21st century. I commend these reforms to the House.